By M. Marin
PRODUCT PORTFOLIO
Broad range of beverages, from wines to energy and sports drinks
Splash Beverage (NYSE:SBEV) owns and markets a growing portfolio of alcoholic and non-alcoholic beverage products. Through organic development and M&A, the company currently produces and markets four beverages brands:
❖ SALT Naturally Flavored Tequila
❖ Copa di Vino single serve wines
❖ Pulpoloco Spanish sangria
The company's strategy is to develop new innovative brands and also to strategically acquire beverages that already have market presence and brand awareness. Management believes this dual approach enables its products to stand out in what is otherwise a relatively crowded beverage marketplace.
TapouT Isotonic Sports Drinks
TapouT Performance is a hydration and recovery isotonic sport drink that has significantly lower sugar levels and artificial flavors than most other sports beverage brands that currently dominate this category. The beverage sector is changing, as consumers respond to healthier lifestyle choices, as the shift in consumer preference for healthier beverages continues. The company is leveraging the growing propensity of consumers to reduce sugar and artificial ingredients. This trend can also be seen in declining sales of soda. IBIS World market research notes that, "After peaking in the late 1990s, per capita soft drink consumption has fallen every year since." Splash believes this trend bodes well for further growth of TapouT products. Splash has license rights to the TapouT brand for the United States and several other international markets. The company has cherry lemonade, orange and citrus kick flavors, with additional brand extensions planned, including TapouT Elite and potentially TapouT Energy.
Brand association & growing reach
TapouT benefits from 23 years of brand awareness, and marketing associated with MMA and The UFC. Last month, Splash and Walmart agreed to distribute TapouT to Walmart locations in Florida. The company is expanding TapouT availability within Walmart's roughly 341 store network in Florida.
SALT Flavored Tequila
Through a JV, the company has SALT Flavored Tequila, a 100% agave 80 proof line of flavored tequilas that Splash sells in citrus, berry and chocolate flavors, as illustrated below. SALT is currently being launched and distributed by several well-established beverage distributors, including RNDC and Young's Market, a leading and fast-growing distributor that is leveraging its ability to distribute both beer and wines in a footprint that encompasses 37 states and expanding. Currently, SALT is available in six states and in Mexico and continues to grow its footprint. To-date, the company has forged agreements with Total Wine, which has been in operation for 30+ years and is one of largest private wine & spirits chains in the U.S., Sams and Wal-Mart Spirits.
Moreover, as direct-to-consumer delivery continues to gain traction, a core strategy for Splash is to launch direct-to-consumer online sales leveraging Qplash, a proprietary e-commerce platform. Splash anticipates several benefits from Qplash, including the ability to incubate and beta test new and emerging brands and to generate higher margin revenues.
Copa di Vino
Copa di Vino, which was featured on Shark Tank, represents the company's initial M&A transaction to complement organic growth. In December of 2020, Splash acquired the assets of Copa di Vino Corporation (CdV) for about $6.0 million. CdV is one of the leading producers of premium wine by the glass in the U.S., with seven wine varietals: Pinot Grigio, Riesling, Merlot, Chardonnay, White Zinfandel, Moscato, and Cabernet Sauvignon.
SBEV continues to expand distribution for CdV, with distribution to 13,000 retailers currently, primarily through 82 Anheuser Busch distributors. Management believes this enables it to gain shelf space in a crowded marketplace.
Pulpoloco Sangria
CdV also produces Pulpoloco Sangria, which currently offers four sangria flavors. Interestingly, the sangria is packaged in an eco-friendly container that is made from paper and is 100% biodegradable. SBEV has the exclusive rights to use this packaging in North America, according to management. Given growing awareness and concerns about the impact of plastic waste on the environment and marine wildlife, the company believes it might have an opportunity to use the packaging for additional products and brands at some point.
Expected product portfolio expansion
Splash intends to continue expanding its product portfolio, primarily through acquisitions and JVs. Splash's preference is to work with brands that, as noted:
1) Already have some level of preexisting brand awareness where Splash can leverage its marketing and distribution know-how to expand the product's regional presence, particularly when there has been some product innovation (SALT Naturally Flavored Tequila, which management believes is the first 100% agave, 80 Proof tequila brand, is an example).
2) Are in a growing and underdeveloped category.
Certain beverage categories display strong growth
Splash is building its product portfolio around changing characteristics in the beverage industry, such as the growing consumer preference for more natural products noted above. At the same time, per capita consumption of wine continues to increase, reaching 3.09 gallons in 2020, up from 2.58 gallons in 2000, according to the Wine Institute. Moreover, in other alcohol categories such as rum and vodka, the impact of flavors has been significant. Overall tequila sales volume has grown by 72% over the past decade; management expects sales of flavored tequila to outpace growth.
Through its direct store delivery (DSD) and other distribution channels noted earlier, Splash is gaining access to top retailers and expects to continue to expand its footprint. As a result, the company registered significant revenue growth in 2020 (see below) and anticipates further growth to come.
Management has extensive experience
Splash management has extensive experience developing, launching and expanding several successful brand introductions, including brands such as Gallo, Red Bull, Bacardi, DIAGEO, Sparkling Ice, Jones Soda, FUZE Beverage, NOS Energy, SoBe Beverages, Muscle Milk, and Marley Beverages, to name a few.
For instance, CEO Robert Nistico has more than 28 years of beverage industry experience. Prior to Splash, he founded and led the Marley Beverage Company from startup to $44+ million in annual revenue and before that, as SVP and General Manager, led Red Bull from $0 revenue in North and Central America and the Caribbean to $1.6 billion in annual revenues.
The company's Chief Marketing Officer, William Meissner, has some 20 years of sales & marketing experience in the beverage and CPG (consumer packaged goods) industries. Prior to his current role with Splash, he was the CEO of several smaller beverage producers, including Sweet Leaf & Tradewinds Tea, Tazza Pronto / Distant Lands Coffee, and Jones Soda, as well as CMO of Fuze/ NOS Beverage, among other high-level executive positions at various beverage companies.
The company believes the expertise management collectively has developed through its experience in the beverage industry will enable Splash to introduce new products that can stand out in an otherwise relatively crowded and competitive marketplace.
Revenue growth, growing distribution network, potential interest from larger players
Reflecting SBEV's growing product portfolio and sales, revenue has grown sequentially in each quarter since 1Q20, as illustrated above. The company also believes it has a highly efficient distribution route to market, with several distribution agreements already in place, many noted above. Importantly, in November of 2021, Splash announced an agreement with the AB ONE network, a subsidiary of AB-InBev, which is among the largest global beverage companies, with brands including Anheuser-Busch. AB ONE, which serves roughly 50,000 accounts, expands an existing multi-state distribution agreement Splash had with Anheuser-Busch distributors and AB ONE and is expected to expand the availability of TapouT, Copa di Vino and Pulpoloco sangria into key new markets.
Given the pressure on core business lines as per capita soft drink sales decline, large players such as Coca-Cola, Pepsi-Cola and others have expanded their product portfolios via M&A in recent years. For instance, Coca-Cola acquired Vitamin Water for $4.2 billion in 2007, which represented an EV/sales multiple estimated at about 9.5x, according to management citing trade publication data. With larger players on the lookout for growing brands, this could portend well for Splash's ability to divest certain brands or possibly in terms of a potential future association with or purchase by a larger beverage company.
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